Layoffs are ubiquitous, but mid-market firms are bearing the strain better than their more illustrious counterparts in the magic circle.
While the credit crunch had meant deals were already being shelved, firms were continuing to enjoy a steady pipeline of work – as indicated in widespread turnover growth for the UK 200 in April 2008. Olswang’s decision appeared to be a little trigger-happy and certainly smacked more of the cut-throat world of investment banking than that of law.
Given the current recession, it might have been fairer to have seen the management as taking swift pre-emptive action. Together with other unpopular initiatives, such as scrapping the 2008 Christmas party and the firmwide end-of-year bonus, Olswang’s 2007 cull may have helped stave off further redundancies in the short term.
Prevailing economic conditions have meant that the firm has now succumbed to further job cuts. At the end of last month it announced that 8 per cent of its UK workforce – about 45 jobs – are under threat (TheLawyer.com, 30 January).
Those facing redundancy may be understandably concerned. Few firms ;are ;hiring. ;And ;2,700 redundancies among the largest law firms (see table) is leading to an oversupply of candidates. But, contrary to popular belief, those who are at mid-market City firms such as Olswang might be better placed than their counterparts either further up the tree at the magic circle, or in small regional practices, to find new jobs.
Firms in cities such as Birmingham, Bristol, Leeds and Manchester were among the first to make job cuts. While there was talk early in the downturn of the regions being more insulated than the City, it comes as no surprise that regional firms, which often have smaller profit margins (in some cases as low as 12 per cent) should have fallen victim. These practices were, and continue to be, more susceptible to dramatic drops in income.
Most of the redundancies have been among real estate teams, particularly property conveyancing, including at Cobbetts, Dickinson Dees, EMW Picton Howell, Fox Hayes, Halliwells, Hammonds Direct, Irwin Mitchell, Kimbells, Matthew Arnold & Baldwin, Osborne Clarke, Pannone and Shoosmiths. But those in other areas hit by the downturn, such as banking and corporate, have also predictably faced the axe.
The sentiment of one Birmingham-based recruiter, who did not want to be named for fear of being seen to talk down the market, is common. “Nearly every firm, if not all, have made redundancies,” he says. “Some have been open and honest; others have swept it under the carpet.”
Growth areas are personal injury and wider contentious insurance and employment, while the recruiter is also keeping “one eye” on the paralegal market for the third quarter of this year. He believes the fact they are cheap and quick to hire means that, if firms need extra capacity, they would prefer hiring at that level rather than at the assistant level.
He adds that, for those seeking work, recruitment opportunities are limited and the process is taking much longer than it did last year.
“Historically firms that have taken a seven out of 10 candidate will want a 10 out of 10,” he explains. “It’s become much more stringent. You’ve got to go through more internal departments – finance, HR, heads of department etc – for sign-off.”
“A lot of firms, even if they’re busy in employment or litigation, are taking their own staff,” says Liz Frost, managing consultant for Scotland at recruiter Hudson. “When people are leaving, they’re not replaced.”
One recruiter in Manchester believes that “people haven’t yet arrived at the stage of reinvesting for the upturn”. She adds that, if things are not totally quiet in her office, it is because there are “less people” in it.
In the City there are two major trends among the redundancies. There are those at firms where real estate accounts for at least a quarter of total turnover (Addleshaw Goddard, LG, Nabarro, SJ Berwin, Wragge & Co). In most cases, these made job cuts first, beginning last summer. They all have profit margins of over 30 per cent and in some cases are extremely well capitalised (Addleshaws and Wragges), but astute financial management may have been the cause of these redundancies rather than preventing them.
Then there are those at firms with core, upper-tier corporate and banking bases (Ashurst, Clifford Chance, Linklaters, Macfarlanes, Travers Smith), where cuts have come later. Highly profitable businesses (they all have profit margins of between 35 and 48 per cent) and in some cases extensive global networks, allowing them to move people to busier offices, helped these firms avoid making large-scale cuts at an earlier stage. While in some cases redundancies have been among residential conveyancers (Travers) and the wider real estate practices (Macfarlanes), it is fair to say that the reliance on complex structured finance practices, blue-chip corporate and private equity has left these firms particularly exposed.
The large numbers of lawyers exiting magic circle, boutique and mid-market firms is generating a backlog of CVs in the mid-market. Pinsent Masons managing partner David Ryan says a “significant increase” in CVs since the start of the New Year has meant his firm’s recruitment team has had to concentrate on these applications rather than doing other tasks following a relative lull.
“We’ve certainly seen candidates and have hired people who, frankly, we probably wouldn’t have been able to attract three to four years ago. That’s a combination of the progress we’ve made as a firm and of market conditions,” he adds, with a plug.
Bircham Dyson Bell, which is a sixth of Pinsents’ size, has also seen both the volume and calibre of CVs increase, according to managing partner Guy Vincent.
“It’s not restricted to areas where there’s a downturn. There are some people who are looking for a move because their real estate-based firms are in difficulties,” he says. “I wouldn’t expect to see magic circle people moving to Bircham – the large firms have all majored on big corporate and finance, areas that we have not.”
But he does say that Bircham has received CVs from “direct major competitors in the projects world”.
The CVs may be flooding in, but unrealistic expectations about pay and working environments from those leaving the larger firms mean that, despite stellar CVs, their chances of getting hired by smaller firms may be less than those coming from other mid-market firms.
“If they’re magic circle lockstep, few firms are going to pay them the same as they were receiving at the magic circle,” states Adrian Fox, who runs recruitment agency Fox Rodney.
“We’re not trying to take advantage of the circumstances, but equally we’re not seeing people take advantage
of us,” Pinsents’ Ryan comments.
What about emerging markets?
Can firms in the Middle East and Asia offer remuneration that is commensurate with what magic circle lawyers expect?
Behind the public gloss, Middle East recruiters admit that the market is quiet and that salaries are pretty much frozen. As the region is now inundated with candidates from elsewhere, firms that are hiring can afford to be more discerning.
“The difficulty [for firms] is differentiating between those actively looking for jobs in the Middle East and those looking for work anywhere,” comments one recruiter. “Firms aren’t interested in the latter, regardless of whether they’re from Linklaters or Allen & Overy.” He predicts a mass exodus of teams from Dubai to Abu Dhabi in the coming months as they flee the burst bubble.
Mark Brandon, partner recruiter at legal recruiter First Counsel, thinks senior lawyers are in for a “rude awakening”.
“The current market’s shown that it’s all about fee income and securing clients,” he insists. “We’re seeing a number of clients coming to us with very few clients and it’s quite difficult to help them. A lot of senior lawyers find it difficult to adapt – they don’t have the core skills to do so. Very often they have large mortgages and kids in private schools. People are loath to restructure their lives. It’s a time for some people when they’re going to have to do the unthinkable.”
At the end of the day, it might be easier to adapt to a tough market coming from an Olswang salary than a Linklaters one.
For the latest information on redundancies, see TheLawyer.com/job-watch